By John Plender

The enrichment of bankers, corporate chiefs, flash traders and their cronies is testing tolerance of inequality, argues John Plender in the first part of an FT series.

Greedy bankers, overpaid executives, anaemic growth, stubbornly high unemployment – these are just a few of the things that have lately driven protesters on to the streets and caused the wider public in the developed world to become disgruntled about capitalism. The system, in all its different varieties, is widely perceived to be failing to deliver.

Business in the leading English-speaking countries attracts misgivings. Fewer than half of the American and British people sampled in the 2011 Edelman Trust Barometer have faith in business to do what is right. The survey rates the US and the UK only marginally ahead of Russia on this score. So there is talk of a crisis of legitimacy and an erosion of business’s “licence to operate”.

This article, the first in a series on rethinking capitalism after the financial crisis that began in 2007, argues that popular acceptance – which is a basic condition for business success – has waned in the Anglosphere for good reason. At the heart of the problem is widening inequality. In a recent study, the Paris-based Organisation for Economic Co-operation and Development, the club of developed nations, declared that the wealthiest Americans “have collected the bulk of the past three decades’ income gains”. Much the same is true of the UK. In both cases, most of the spoils have gone to finance professionals and top executives.

As Stewart Lansley, author of a recent book on inequality*, puts it, the modern economy appears to consist of two tracks: a fast one for the super-rich and a stalled one for everyone else. Those in the slow lane enjoyed rising living standards before 2007, despite stagnant real incomes, thanks to increased borrowing on the security of their homes. Since the crisis, however, American and British homeowners have faced a long and deep squeeze on real living standards, while struggling to service an unprecedented level of indebtedness. At the same time, says Mr Lansley, finance has come to play a new role as “a cash cow for a global super-rich elite”.

In continental Europe, the increase in inequality is less pronounced and the legitimacy problem has more to do with the way imbalances in the eurozone are being addressed. Northern Europeans resent a monetary union that has permitted southern Europe to engage in what they see as fiscally profligate behaviour, while southern Europeans and the Irish are required to submit to extreme austerity programmes that exacerbate their sovereign debt problems. Read more…

As published in www.ft.com on January 8, 2012.



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